Banking practices changed little since crash

When Lehman Brothers went bust, images of staff carrying boxes out of offices in New York, London and Tokyo seemed to represent an unforgettable public humiliation for bankers. Action was taken to shore up the system, but key figures at the heart of the financial rescue in 2008 reveal that the risk of another meltdown is still very real

By Larry Elliott and Jill Treanor / The Observer

Yet even people who were directly involved in bailing out the banks have argued against such separation. Darling points out that a ringfence would not have stopped the collapses of Northern Rock or HBOS — “bog-standard high street banks that got into trouble.”

Many now fear that more trouble is brewing. “We would be naive to say we could not have another crisis in the next 10 years or so,” Myners said.

Darling does not set a timeframe for a further crisis, but fears it will come. “People will forget,” the former chancellor said. “Once the people who were there in 2008 have left [their jobs], the banks will lose their institutional memory.”

Senior Bank of England director Andy Haldane is also concerned about a forgetful City. In a speech this month he said: “Financial crises underscore the importance of a policymaker with institutional memory. This reduces the risk of disaster myopia, of ignoring worrying dots on distant horizons, of being information-rich yet attention-poor, of forgetting fat tails. To misquote Mark Twain, although crises do not repeat themselves, they do rhyme.”

Areas of concern now include the shadowy, unregulated banking sector in China and the weak lenders in the eurozone, many of which are still being kept afloat by the European Central Bank. “In Europe there is complete failure to deal with the banks apart from on a piecemeal basis,” Darling said.

He points out that much of the money was lost because of good old-fashioned lending errors rather than “fancy footwork.” This means there is reason to fear such mistakes could be repeating themselves — in, for example, the schemes created by British Chancellor of the Exchequer George Osborne to get the UK’s housing market moving. As much as he insisted last week that he was not creating a housing bubble, a record number of people are now employed in the estate agency business, house builders are once again reporting queues to snap up new homes and prices are rising at their fastest rate since the 2006 peak.

Business secretary Vince Cable last week said Osborne should consider postponing the next stage of Help to Buy, a British government-backed initiative set up to help home-hunters purchase a property with as little as a 5 percent deposit.

Darling is not impressed either

“The risk is putting more in people’s pockets to chase the housing stock that’s there. I am worried that will create another housing bubble where people think houses are worth more than they are,” he said.

Turner puts its more bluntly.

“The cure for this hangover, it seems, is the hair of the dog that bit us,” he said.